What happens?
In addition to the Plusvalia Municipal applied by the municipality to the increase in the value of the land from the purchase to the sale of the property, a 3% withholding tax is applied to the non-resident foreign seller.
The 3% withholding to the non-resident foreign seller in Spain corresponds to a preventive measure related to the Non-Resident Income Tax (IRNR). This withholding is applied on the sale price of the property and serves as an advance payment or payment on account of the capital gains tax that the non-resident seller might owe on the sale of the property.
How does it work?
- When Selling: When a non-resident sells a property in Spain, the buyer is obliged to withhold 3% of the sale price and pay this amount to the Spanish Tax Agency as an advance payment of the seller’s capital gains tax.
- Purpose: This mechanism ensures that, even if the non-resident seller leaves Spain after the sale, a portion of the tax potentially due is covered.
- Adjustment of Accounts: After the sale, the non-resident seller must file a tax return on the capital gain realised from the sale. If the tax due is less than the 3% withheld, the seller can apply for a refund of the excess. If the tax is higher, he must pay the difference.
IMPORTANT CONSIDERATIONS
- Declaration of Sale: The non-resident seller has a period of time (usually four months after the sale) to file the IRNR return and settle the capital gains tax.
- Documentation and Calculations: It is crucial to have all the necessary documents proving the purchase and sale value of the property, as well as the associated costs, in order to correctly calculate the capital gain.
- Professional Advice: Given the complexity of the tax laws and the need to ensure that all calculations are correct, it is highly recommended to seek the advice of a professional specialising in Spanish real estate taxation.
This withholding system is an essential part of tax planning for non-resident sellers, and understanding it properly can help to avoid surprises and ensure that the transaction is carried out in a tax efficient manner.
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